Zynga hit by problems on social, mobile platforms

DanGallagher

SAN FRANCISCO (MarketWatch) — Zynga Inc. was hit by problems with its core social games on the Facebook Inc. platform and a disappointing performance of its recently acquired “Draw Something” mobile game in the second quarter, causing the company to miss analysts’ estimates and slash its forecast for the full year.

Investors punished Zynga’s
ZNGA, +0.40%
shares, which plunged as much as 40% in after-hours trading to near the $3 mark. That’s 70% below its IPO price in December. Facebook also was hit, with its shares off more than 8% in after-hours trades following the results.

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Zynga said bookings grew by 10% for the second quarter to $302 million, but that figure fell well short of the $337 million expected by analysts. It also represented a drop of 8% from the first quarter, despite the launch of new games such as “Bubble Safari” and “The Ville” — though the latter launched very late in the period.

The company also slashed its forecast, lowering its full-year booking range to $1.15 billion to $1.23 billion. It previously had projected full-year bookings in the range of $1.43 billion to $1.5 billion. Read more about Zynga’s earnings report.

In a conference call with analysts, Zynga cited recent changes made by Facebook that the company says hurt the performance of some of its older, more successful titles that operate under an “invest and express” business model, meaning that players buy virtual goods in these games that change the appearance of their characters and properties. Facebook’s changes also raised the profile for newly launched games.

“So it was good for new games and it was challenging for existing games,” Zynga Chief Operating Officer John Schappert said on the call.

Chief Executive Mark Pincus said the company still expects to draw a greater portion of its revenue from mobile gaming over the longer term, but added that this category is still “fragmented” and largely dominated by the App Store that feeds devices manufactured from Apple Inc.
AAPL, -0.87%

“We need to build out the kinds of channels that have been key not just to distribution for us on Facebook, but key to enabling [mobile] to be a highly social experience, which is also key to driving ongoing engagement,” Pincus added.

For the period ended June 30, Zynga reported a net loss of $22.8 million, or 3 cents a share, compared with net income of $1.4 million, or break-even on a per-share basis, for the same period last year. Earnings on an adjusted basis came in at $4.5 million, or 1 cent per share, for the recent period.

Revenue rose 19% to $332 million. Bookings grew 10% to $302 million, though came in below the $337 million expected by analyst.

Analysts were expecting earnings of 5 cents a share on revenue of $342.7 million for the quarter, according to consensus estimates from FactSet. For the full year, Zynga lowered its predicted earnings per-share range to 4 cents to 9 cents a share from its earlier range of 23 cents to 29 cents a share.

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